%5A 


THE  REGULATION 


INTERSTATE  RAILWAYS 


By  H.  T.  NEWCOMB 

Of  the  Bar  of  the  District  of  Columbia 

Author  of  “ Railway  Economics,”  “The  Work  of  the 
Interstate  Commerce  Commission,”  etc. 


4 

Reprinted,  by  permission,  from  the  Bulletin  of  the 
Commercial  Law  League  of  America 
for  February,  1905 


!9°5 


CONTENTS. 

Page 

The  Law  Against  Rebates ....  5 

Successful  Operation  of  Elkins  Law 7 

Importance  of  Clear  Thinking 8 

What  the  Townsend-Esch  Bill  Would  Do 8 

It  Confers  General  Rate-making  Power 9 

It  Confers  Legislative  Power iq. 

It  Concentrates  a Power  now  Widely  Diffused  . . . .12 

It  Would  Stop  Voluntary  Reductions 13 

Provides  an  Inelastic  System 15 

The  Political  Dangers 15 

It  Would  Increase  Rebating 16 

Jit  Gives  Power  to  Increase  Rates 17 

It  Would  Provoke  Litigation  . 19 

Who  Own  the  Railways 20 

“Impracticable,”  said  Judge  Cooley 


? 


22 


THE 


Regulation  of  Interstate  Railways" 


By  H.  T.  NEWCOMB, 

Of  the  Bar  of  the  District  of  Columbia. 


The  impetus  recently  given  by  President  Roosevelt  to 
public  discussion  of  the  legislative  regulation  of  interstate 
railways  makes  it  worth  while  to  state  precisely  the  nature 
and  purpose  of  the  proposals  now  under  consideration  by 
the  Congress.  The  paragraph  relating  to  this  topic  in  the 
President’s  annual  message  was  entitled  “Rebates,”  but 
there  is  nothing  in  what  followed  to  warrant  that  title  and 
no  measure  dealing  with  the  payment  of  rebates  is  now 
receiving  congressional  consideration.  A rebate,  using  the 
word  in  its  broadest  sense,  is  any  device  by  which  one  shipper 
of  freight  is  permitted  to  receive  service  for  a smaller  pay- 
ment than  is  exacted  from  some  other  shipper  for  a like  and 
contemporaneous  service. 

THE  LAW  AGAINST  REBATES. 

All  devices  of  this  sort  are  absolutely  prohibited  by  Federal 
law  and  have  been  so  prohibited  for  nearly  eighteen  years. 
The  language  of  the  statute  is  broad  enough  to  cover  any 
conceivable  device,  whether  by  underbilling,  underweighing, 
false  classification,  excessive  payments  for  the  use  of  shippers’ 

♦Reprinted  from  the  Bulletin  of  the  Commercial  Law  League  of  America  for 
February,  1905. 


5 


6 


♦ 

cars,  unreasonable  allowances  to  terminal  railways  or  other- 
wise. The  law  on  this  subject  was  materially  strengthened 
by  the  Elkins  act,  approved  on  February  19,  1903,  which  reads, 
in  part,  as  follows : 

. . and  it  shall  be  unlawful  for  any  person,  persons, 

or  corporation  to  offer,  grant,  or  give  or  to  solicit,  accept, 
or  receive  any  rebate,  concession,  or  discrimination  in  respect 
of  the  transportation  of  any  property  in  interstate  or  foreign 
commerce  by  any  common  carrier  subject  to  said  act  to  regu- 
late commerce  and  the  acts  amendatory  thereto,  whereby 
any  such  property  shall  by  any  device  whatever  be  transported 
at  a less  rate  than  that  named  in  the  tariffs  published  and  filed 
by  such  carrier,  as  is  required  by  said  act  to  regulate  com- 
merce and  the  acts  amendatory  thereto,  or  whereby  any  other 
advantage  is  given  or  discrimination  is  practiced.” 

Violation  of  the  foregoing  is  a misdemeanor,  punishable 
by  a fine,  which  may  not  be  less  than  $1,000  nor  more  than 
$20,000.  In  addition  to  these  penalties,  the  statute  places 
in  the  hands  of  the  Interstate  Commerce  Commission  a most 
powerful  instrument  for  the  enforcement  of  the  laws  by  pro- 
viding : 

“That  whenever  the  Interstate  Commerce  Commission 
shall  have  reasonable  ground  for  belief  that  any  common 
carrier  is  engaged  in  the  carriage  of  passengers  or  freight 
traffic  between  given  points  at  less  than  the  published  rates 
on  file,  or  is  committing  any  discriminations  forbidden  by 
law,  a petition  may  be  presented  alleging  such  facts  to  the 
Circuit  Court  of  the  United  States,  sitting  in  equity,  having 
jurisdiction;  . . . whereupon  it  shall  be  the  duty  of  the 

court  summarily  to  inquire  into  the  circumstances  upon  such 
notice,  and  in  such  manner  as  the  court  shall  direct,  and  with- 
out the  formal  pleadings  and  proceedings  applicable  to  ordi- 
nary suits  in  equity,  . . . and  upon  being  satisfied  of 

the  truth  of  the  allegations  of  said  petition,  said  court  shall 
enforce  an  observance  of  the  published  tariffs  or  direct  and 
require  a discontinuance  of  such  discrimination  by  proper 
orders,  writs  and  process.  . . 


SUCCESSFUL  OPERATION  OF  ELKINS  LAW. 


Thus  “government  by  injunction”  has  been  invoked  in 
aid  of  the  suppresion  of  rebates.  In  his  annual  message  to 
Congress  of  a year  ago  (transmitted  on  December  7,  1903), 
the  President  declared,  concerning  this  legislation: 

“The  Congress  . . . has  secured  equal  treatment  to 

all  producers  in  the  transportation  of  their  goods,  thus  taking 
a long  stride  forward  in  making  effective  the  work  of  the  Inter- 
state Commerce  Commission.” 

The  testimony  of  the  Interstate  Commerce  Commission, 
as  given  in  the  annual  report  which  it  submitted  to  Congress 
on  December  17,  1904,  is  that — 

“As  to  that  branch  of  regulation  which  deals  with  the 
publication  and  invariable  application  of  tariff  rates,  the  act, 
as  amended  by  the  Elkins  law  of  February  19,  1903,  appears 
to  be  operating  successfully  as  applied  to  carriers  subject  to 
its  provisions.  . . 

Mr.  E.  P.  Bacon,  who  is  the  chief  legislative  agent  of  those 
who  wish  to  confer  rate-making  authority  upon  the  Commis- 
sion on  December  9,  1904,  while  addressing  the  Committee 
on  Interstate  and  Foreign  Commerce  of  the  House  of  Repre- 
sentatives, was  asked  whether  he  had  “heard  of  any  proceed- 
ings against  the  railroads  in  the  matter  of  rebates.”  He 
replied  as  follows: 

“I  have  not  heard  of  any  occasion  for  proceedings.  *It 
has  been  so  generally  observed  by  the  railways  since  its  passage 
that  there  has  been  no  occasion  for  prosecution.” 

During  the  same  hearing  and  also  with  reference  to  the 
Elkins  act,  Mr.  Bacon  said: 

“That  . . . has  been  productive  of  immense  good. 

It  has  been  surprising,  in  fact,  to  me  to  what  an  extent  that 
bill  has  been  complied  with  by  the  transportation  companies, 
and  in  fact  our  committee  has  been  unable  to  trace  any  viola- 
tion of  that  bill  of  any  consequence.  There  have  been  some 
devices  for  defeating  it  by  the  establishment  of  side  tracks, 


Meaning  the  Elkins  law  of  February  19  1903 


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♦ 

which  are  called  railroads,  so  that  on  a division  with  the 
railroads  they  get  an  undue  proportion , and  by  that  means 
obtaining  personal  discriminations,  personal  favors,  and  per- 
sonal advantages.  But  the  Commission,  after  hearing  some 
cases  in  that  direction,  have  already  taken  steps  to  prevent 
that  evasion  of  the  law.” 

By  whatever  device  accomplished,  a rebate  is  vicious  in 
principle  and  demoralizing  in  practice.  It  is  fortunate  that 
it  offends  the  American  spirit  of  fairness ; that  it  is  so  wholly 
obnoxious  to  the  people  that  its  condemnation  is  as  certain 
and  as  general  as  it  deserves.  Rebates  from  interstate  freight 
charges  have  been  illegal  for  but  eighteen  years,  and  the  laws 
against  them  have  been  strengthened  from  time  to  time  as 
opportunities  for  their  perfection  have  been  indicated  by 
experience.  If  they  are  not  as  effective  as  the  laws  against 
burglary  and  arson,  the  fact  may  be  set  down  as,  principally, 
evidence  of  the  slow  growth  of  higher  moral  ideals  amidst  the 
struggles  of  the  market  place. 

Further  strengthening  of  these  laws  should  be  welcomed 
and  will  be  welcomed  whenever  it  is  clear  that  the  changes 
suggested  are  likely  to  produce  the  results  desired. 


IMPORTANCE  OF  CLEAR  THINKING. 

It  would  be  most  unfortunate,  however,  if  the  improper 
and  inappropriate  use  of  a term  of  such  sinister  suggestion 
as  the  word  ‘ ‘ rebate  ’ ’ should  result  in  the  enactment  of  unwise 
laws  which  could  have  no  relation  or  application  to  the  obnox- 
ious practice  to  which  that  term  properly  applies. 


WHAT  THE  TOWNSEND-ESCH  BILL  WOULD  DO. 

The  proposals  now  under  consideration  in  Congress  relate 
solely  to  the  enlargement  of  the  power  of  the  Government 
over  the  rate  schedules,  and  not  to  the  prevention  of  the  devia- 
tions from  those  schedules  which  are  accomplished  by  means 


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of  rebates.  The  President  urges  that  the  Interstate  Com- 
merce Commission  be  endowed  with  “the  power  to  revise 
rates  and  regulations,”  or,  in  other  words,  to  revise  and 
remake  the  schedules  of  charges  which  the  railways  must 
observe.  The  Commission  has  described  (in  its  annual 
report  for  1904)  the  enlarged  power  which  it  seeks,  as  follows: 

‘ ‘ What  the  Commission  could  do  if  the  authority  so  defined 
should  be  definitely  conferred  by  the  Congress  is  this : After 
service  of  complaint  upon  the  carrier  or  carriers,  after  full 
hearing  of  each  carrier  and  shipper  interested,  and  after  care- 
ful investigation,  a report  and  opinion  would  be  rendered,  and 
if  the  decision  should  be  against  the  carrier,  an  order  would 
be  entered  directing  it  to  cease  and  desist  from  charging  the  rate 
complained  of,  and  to  substitute  therefor  a rate  found,  upon  the 
evidence  before  the  Commission,  to  be  reasonable  and  just.” 

The  only  substantial  criticism  of  the  foregoing  which  can 
be  made  is  the  use  of  the  singular  form  ‘ ‘ rate  ’ ’ instead  of  the 
plural  form  “rates”  in  describing  the  changes  in  the  schedules 
which  the  Commission  wishes  to  have  power  to  make. 

This  choice  of  a word  of  minimum  significance  was  not 
intended  to  mislead  anyone  and  will  not  mislead  anyone,  for 
the  Commission  declares,  in  the  sentence  immediately  preced- 
ing that  just  quoted,  that  the  proposed  enlargement  of  its 
powers  “would  confer  in  substance  the  same  power  that  was 
actually  exercised  by  the  Commission  from  the  date  of  its 
organization  up  to  May,  1897,  when  the  United  States  Supreme 
Court  held  that  such  power  was  not  expressed  in  the  statute.”' 


IT  CONFERS  GENERAL  RATE-MAKING  POWER. 

Now,  it  happens  that  in  the  very  case  decided  by  the 
Supreme  Court  in  May,  1897,  the  Commission  had  attempted 
by  a single  order  to  substitute,  not  “a  rate,”  but  several 
thousand  rates,  which  it  regarded  as  “reasonable  and  just,” 
for  several  thousand  other  rates  which  it  had  condemned. 
In  fact,  in  this  one  order  it  attempted  to  compel  a complete 


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revision  of  the  charges  on  all  through,  south-bound  railway- 
freight  originating  east  of  the  Mississippi  River  and  north  of 
the  Ohio  and  Potomac  rivers,  and  destined  to  points  south 
of  the  two  last  named  rivers  and  east  of  the  Mississippi  River. 
The  Commission  regards  it  as  “persistent  misrepresentation” 
to  allege  that  the  power  sought  is  that  of  rate-making,  but  if 
this  is  true  the  misrepresentation  began  with  the  highest 
court  in  the  land.  In  deciding  the  case  just  referred  to,  the 
Supreme  Court  said  : 

“There  is  nothing  in  the  act  requiring  the  Commission  to 
proceed  singly  against  each  railroad  company  for  each  sup- 
posed or  alleged  violation  of  the  act.  In  this  very  case  the 
order  of  the  Commission  was  directed  against  a score  or  more 
of  companies  and  determined  the  maximum  rates  on  half  a 
dozen  classes  of  freight  from  Cincinnati  and  Chicago,  respec- 
tively, to  several  named  southern  ports  and  the  territory 
contiguous  thereto,  so  that  if  the  power  exists,  as  is  claimed, 
there  would  be  no  escape  from  the  conclusion  that  it  would 
be  within  the  discretion  of  the  Commission  of  its  own  motion 
to  suggest  that  the  interstate  rates  on  all  the  roads  of  the 
country  were  unjust  and  unreasonable,  notify  the  several 
roads  of  such  opinion,  direct  a hearing,  and  upon  such  a hear- 
ing make  one  general  order,  reaching  to  every  road  and  cover- 
ing every  rate.”  (167  U.  S.,  p.  508.) 


IT  CONFERS  LEGISLATIVE  POWER. 

In  the  same  case  the  Supreme  Court  defined  the  nature  of 
the  powers  which  the  Commission  then  claimed  to  exercise 
and  now  seeks  to  obtain,  as  follows: 

“It  is  one  thing  to  inquire  whether  the  rates  which  have 
been  charged  and  collected  are  reasonable — that  is  a judicial 
act;  but  an  entirely  different  thing  to  prescribe  rates  which 
shall  be  charged  in  the  future — that  is  a legislative  act.” 
(Ibid.,  p.  499.) 

The  power  to  initiate  railway  rates  over  any  railway  is 


1 1 

exhausted  almost  as  soon  as  its  operation  is  begun.  There- 
after no  power  anywhere  remains  except  that  to  revise, 
remodel,  and  correct  the  schedules  originally  adopted  or  their 
successors.  This  power,  so  far  as  interstate  traffic  is  con- 
cerned, must  be  exercised  subject  to  Congressional  regula- 
tion, and  this  regulation  may  constitutionally  go  so  far  as  to 
take  the  rate-making  or  rate-revising  authority  away  from 
those  who  now  exercise  it  and  transfer  it  to  Congress  or  to  a 
commission.  Constitutionally  this  legislative  power  is  com- 
plete and  plenary,  except  as  it  is  limited  by  the  provisions- 
that : — 

(a)  “No  person  shall  be  . . . deprived  of  life,  liberty,, 

or  property,  without  due  process  of  law  ” (Article  V.  of  the 
Amendments  to  the  Constitution  of  the  United  States.)  And — 

(b)  “No  preference  shall  be  given  by  any  regulation  of 
commerce  or  revenue  to  the  ports  of  one  State  over  those  of 
another.”  (Article  I.,  Section  9,  of  the  Constitution  of  the 
United  States.) 

But  the  fact  that  the  Congress  possesses  the  power  of  rail- 
way rate  making,  a power  conferred  before  the  locomotive 
was  dreamed  of ; when  the  greater  portion  of  the  present  area 
of  the  United  States  was  an  uninhabited  and  trackless  wilder- 
ness ; when  the  entire  population  of  the  country  was  less  than 
four  millions ; when  it  contained  but  five  cities  of  ten  thousand 
inhabitants  and  none  over  thirty-five  thousand;  is,  perhaps, 
not  evidence  that  it  should  be  fully  exercised  in  the  day  when 
even  the  oceans  do  not  mark  the  boundaries  of  the  nation, 
when  forty-five  thousand  locomotives  and  205,000  miles  of 
track  are  the  measure  of  railway  development;  when  con- 
tinental America  counts  its  population  as  eighty-five  millions 
and  one  of  its  seaports  contains  more  people  than  were 
covered  by  its  flag  when  the  power  was  established.  As  said 
by  the  Supreme  Court  in  the  case  already  quoted : 

“The  importance  of  the  question  can  not  be  overestimated. 
Billions  of  dollars  are  invested  in  railroad  properties,  millions 
of  passengers,  as  well  as  millions  of  tons  of  freight,  are  moved 
each  year  by  the  railroad  companies,  and  this  transportation 


12 


is  carried  on  by  a multitude  of  corporations  working  in 
different  parts  of  the  country  and  subjected  to  varying  and 
diverse  conditions.”  (167  U.  S.,  p.  494.) 

A far  less  authoritative  contribution  to  the  discussion  on 
this  subject  says,  with  truth: 

‘‘The  power  to  ‘revise  rates  and  regulations’  is  the  power 
generally  to  make  rates.  Applied  to  American  interstate 
railway  services,  it  is  greater  power  than  has  ever  been  exer- 
cised by  any  President  or  Prince,  by  any  Congress  or  Parlia- 
ment, by  any  body  of  five  men  or  of  five  thousand  men.  It 
is  power  to  bind  or  to  loose  industry,  to  enrich  or  to  impover- 
ish both  capital  and  labor,  to  build  up  or  to  tear  down  com- 
munities and  commerce.” 


IT  CONCENTRATES  A POWER  NOW  WIDELY 
DIFFUSED. 

This  tremendous  power  is  now  neither  held  nor  exercised 
by  any  railway  officer  nor  by  all  of  the  railway  officers  of  the 
country  together.  Although  nominally  resting  with  them, 
it  is  really  shared  with  those  who  ship  commodities  and, 
finally,  with  the  consumers  of  the  articles  transported.  No 
check  is  more  real  or  more  effective  than  that  imposed  upon 
railway  officers  by  commercial  competition.  Traffic  and 
namings  grow  with  fairness,  not  with  unfairness.  No  rail- 
way ever  prospered  while  serving  unprosperous  communities. 
Producers  will  not  produce  and  consumers  will  not  consume 
at  localities  which  are  subjected  to  unjust  prejudice  and  dis- 
advantage by  the  adjustment  of  railway  rates.  The  present 
body  of  railway  rates  has  grown  up  out  of  these  conditions 
and  subject  to  these  checks.  American  industry  is  intensely 
dynamic  and  the  changes  are  rapid  and  far-reaching.  Day 
by  day  these  changes  require  changes  in  rates,  and  so  long 
as  progress  continues  the  charges  must  be  altered  and  read- 
justed Thousands  of  railway  officers  hold  daily  conferences 
with  tens  of  thousands  of  shippers  for  the  purpose  of  agreeing 


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upon  reductions  of  rates.  From  April  5,  1887,  to  the  date 
of  its  latest  (1904)  annual  report,  the  Interstate  Commerce 
Commission  received  2,358,960  rate  schedules,  and  the  present 
annual  average  is  about  one  hundred  thousand.  Nearly  all 
of  these  schedules  are  issued  in  order  to  report  reductions. 
The  writer  last  quoted  was  perfectly  accurate  in  saying,  in 
regard  to  the  rate-making  power : 

“Given  to  the  Interstate  Commerce  Commission,  it  will 
not  have  been  transferred  from  the  railways,  for  neither 
singly  nor  collectively  can  they  or  do  they  now  exercise  it;  it 
will  have  been  taken  from  the  public,  travelers,  shippers,  and 
railways  among  whom  it  is  now  diffused,  and  concentrated 
in  the  hands  of  a government  which  by  that  act  of  concentra- 
tion will  be  made  the  most  powerful  and  the  most  centralized 
of  all  governments  on  earth,  from  the  earliest  dawn  of  history 
to  the  present  day.” 


IT  WOULD  STOP  VOLUNTARY  REDUCTIONS. 

The  purchasers  of  transportation  fare  better  with  open-minded 
railway  officers  than  they  would  with  a rate -making  Commission. 

Thousands  of  railway  officers  are  to-day  looking  for  oppor- 
tunities to  make  profitable  reductions  in  rates.  They  con- 
duct this  search  not  as  philanthropists,  but  because  the  first 
lesson  they  have  learned  as  traffic  officers  and  the  most  impor- 
tant principle  on  which  they  act  is  that,  under  certain  con- 
ditions, lower  rates  mean  more  business  and  an  increase  in 
revenue  which  exceeds  the  increased  cost  that  the  new  busi- 
ness entails.  They  know  that  progress  in  this  direction  is  a 
geometrical  progression,  that  is,  that  more  paying  traffic 
secured  by  lowered  rates  means  more  prosperous  customers; 
that  more  prosperous  customers  mean  new  items  of  traffic 
and  enlarged  movement  of  the  old  items,  and  that  these 
augmentations  will  warrant  other  reductions  in  charges  which 
will  cause  a repetition  of  the  process.  Under  normal  con- 
ditions and  eliminating  the  items  of  traffic  whose  volume  is 


14 


not  elastic,  there  will  be  no  cessation  in  the  downward  trend 
of  rates  until  every  customer  is  satisfied.  But  create  a rate- 
making Commission  and  everything  is  changed.  The  traffic 
officer  who  formerly  sought  for  opportunities  to  reduce  his 
rates  is  no  longer  open-minded ; he  has  been  transformed  into 
an  advocate  of  the  existing  schedule  and  every  item  in  it. 
He  knows  that  a voluntary  reduction  will  be  used  as  a club 
to  compel  an  involuntary  one.  Therefore,  his  answer  to  the 
shipper  who  seeks  a reduced  rate  is  very  likely  to  be  that  it 
is  the  business  of  the  Interstate  Commerce  Commission  to 
make  reductions.  And  no  commission  of  five  men  or  of  fifty 
men  can  order  reductions,  after  investigations  bearing  the 
slightest  resemblance  to  judicial  procedure,  with  one-tenth 
of  the  rapidity  with  which  they  are  now  voluntarily  made. 
This  retardation  of  the  natural  decline  in  rates  has  happened 
wherever  official  rate-making  has  been  enforced  by  State 
Legislatures.  The  Atlanta  Journal  recently  made  the  follow- 
ing statement  concerning  conditions  in  Georgia,  which  has 
long  had  a rate-making  Commission : 

“ ...  when  a merchant  approaches  the  railroad  for 

rates  in  Georgia  he  is  met  with  the  reply  that  the  railroad 
commission  regulates  that,  and  he  can  get  no  reduction.  If, 
however,  they  are  asked  for  rates  to  towns  outside  of  Georgia, 
the  application  receives  immediate  and  favorable  considera- 
tion, and  the  best  rates  are  granted,  because  the  point  of 
destination  is  beyond  the  limits  of  the  State,  and,  therefore, 
not  controlled  by  the  State  Commission.  . . . • As  mat- 

ters now  stand  the  plain  logic  of  the  situation  is  that  within 
the  State  of  Georgia,  rates  being  regulated  by  the  railroad 
commission,  shippers  are  powerless  to  receive  fair  treatment 
from  the  railroads,  while  to  points  just  beyond  the  limits  of 
the  State  they  can  receive  the  most  favorable  rates,  and 
shippers  from  these  points  into  the  Sta^e  receive  the  lowest 
rates  that  can  be  obtained — much  lower,  as  a rule,  than  the 
Georgia  shipper  can  get.” 


i5 


PROVIDES  AN  INELASTIC  SYSTEM. 

Official  rate-making  would  subject  American  industry  to 
arbitrary  and  inelastic  conditions,  under  which  progress  would 
be  checked. 

A serious  vice  of  legislative  interference  with  the  business 
relations  among  the  participants  in  industry  is  that  the  insight 
of  the  legislature,  or  its  agents,  in  business  matters  can  not 
be  as  keen  as  that  of  those  directly  concerned  in  them,  nor 
is  the  impulse  to  secure  accurate  and  complete  knowledge 
equal  to  that  due  to  the  rigid  responsibility  for  commercial 
success  or  failure  imposed  by  the  competitive  conditions  of 
private  business.  The  physical  limitation  is  perhaps  even 
greater.  No  Federal  commission  has  or  will  ever  have  the 
multitudinous  agencies  for  studying  the  needs  of  industry  or 
the  close  touch  with  business  life  which  railway  traffic  officers 
now  enjoy.  If  all  other  elements  were  supplied,  as  they  never 
can  be,  no  Congress  would  ever  accord  the  funds  necessary  to 
employ  a force  adequate  in  mere  numerical  strength.  Rate- 
making is  essentially  empirical.  The  ultimate  test  of  each 
rate  is  the  degree  of  prosperity  of  the  producer,  the  carrier, 
and  the  consumer.  However  thoroughly  conditions  are 
studied  before  a new  rate  is  made,  the  results  of  its  enforce- 
ment must  be  gathered  promptly  and  in  detail,  and  some  one 
must  be  ready  with  the  necessary  power  immediately  to  m^ke 
a second  change  if  the  first  is  shown  by  experience  to  have  been 
unfortunate.  No  commission  can  exercise  these  functions, 
nor  can  any  commission  ever  respond  with  the  needed  rapidity 
to  the  daily  changing  conditions  of  interstate  commerce. 
The  pending  proposals  would  stretch  American  industry  upon 
a Procrustean  bed  and  result  in  nothing  but  numbness,  stag- 
nation, and  deformity. 


THE  POLITICAL  DANGERS. 

Government  rate-making  would  introduce  political  considera- 
tions in  matters  which  are  wholly  industrial. 


i6 


There  is  no  industrial  community  in  the  United  States 
which  does  not  compete  with  some  other  community,  and 
none  which  would  not  like  to  have  its  rates  reduced  or  those 
of  its  competitors  advanced.  Boston  complains  because 
its  rates  on  similar  traffic  are  higher  than  those  of  New  York; 
New  York  complains  that  it  pays  more  than  Philadelphia; 
Philadelphia,  that  it  pays  more  than  Baltimore ; all  four  would 
like  to  have  the  rates  to  New  Orleans  and  Galveston  greatly 
advanced.  Only  the  other  day  a New  England  Senator, 
high  in  the  councils  of  the  President,  announced  that  the  pur- 
pose of  the  proposed  legislation  is  the  abolition  of  the  differ- 
entials under  the  standard  rates  which  permit  the  Southern 
Atlantic  ports  to  do  any  competitive  business  at  all.  This 
would  be  very  satisfactory  to  Boston,  but  carry  the  news  to 
Norfolk,  Newport  News,  Wilmington,  Charleston,  Savannah, 
Brunswick,  and  Pensacola,  and  it  would  be  received  quite 
differently.  Yet  the  Commission  is  composed  of  the  political 
appointees  of  a partisan  President,  and,  unfortunately,  there 
must  for  a long  time  to  come  be  something  of  sectionalism  in 
American  politics.  Is  it  not  possible,  even  probable,  that,  in 
spite  of  the  most  impartial  purposes,  some  favor  will  be  shown 
to  the  localities  that  are  in  political  accord  with  the  admini- 
stration or  party  in  power?  Certainly  the  likelihood  of  such 
unintentional  bias  is  not  lessened  by  the  fact  that  the  mem- 
bers of  the  Commission  are  appointed  for  limited  terms,  are 
almost  certain  to  desire  reappointment,  and  may  be  ambitious 
for  further  political  advancement. 


IT  WOULD  INCREASE  REBATING. 

There  would  he  more  rehating  under  official  rate -making  than 
under  the  existing  system. 

The  power  of  the  Federal  Government  and  most  drastic 
laws  have  not  been  sufficient,  up  to  the  present  time,  wholly 
to  eliminate  secret  deviations  from  schedules  promulgated 
by  the  railways.  Is  it  likely  to  be  easier  to  enforce  schedules 


made  by  an  extraneous  authority?  In  this  connection  it  is 
important  to  note  that  the  power  sought  is  to  raise  as  well 
as  to  lower  rates.  The  Commission  has  announced  that 
many  rates  are  too  low  (Annual  Report  for  1897,  p.  22),  and 
it  follows  that  some  ought  to  be  advanced  if  others  are  lowered. 
In  fact,  this  is  an  essential  corollary  to  the  well-known  fact 
that  railway  property  as  a whole  produces  a very  low  return 
upon  the  investment.  In  urging,  in  1897,  that  it  be  given 
rate-making  power,  the  Commission  explained  at  length  its 
desire  to  be  empowered  to  order  advances  in  rates,  saying: 

“There  is,  moreover,  one  class  of  discriminations  which  we 
have  never  possessed  the  power  to  effectually  correct,  even 
while  we  assumed  the  right  to  fix  the  maximum  rate. 

The  most  bitterly  contested  cases  now  pending  before  us  are 
of  exactly  that  character.  . . . What  is  necessary  here 

is  the  right  to  fix  a minimum  rate,  to  say  that  the  carriers 
shall  not  charge  below  a certain  rate.  ...  It  may  well 
be  inquired  whether  a carrier  should  be  prohibited  from  mak- 
ing as  low  a rate  as  it  chooses.  . . . The  very  reason 

why  we  suggest  that  the  Commission  be  given  this  power  to 
fix  a minimum  rate  in  certain  cases  is  to  preserve  the  rights 
of  the  public  by  preventing  an  act  of  unjust  discrimination.” 
(Annual  Report  for  1897,  pp.  24-25.) 


IT  GIVES  POWER  TO  INCREASE  RATES. 

There  is  scarcely  any  complaint  that  railway  rates  are 
excessive  per  se , and  no  well-founded  complaint  of  that  char- 
acter. No  allegation  of  absolute  unreasonableness  in  charges 
has  ever  yet  survived  the  test  of  judicial  scrutiny;  the  Com- 
mission has  never  declared  a rate  to  be  excessive  in  and  of 
itself  except  after  comparing  it  with  other  rates  or  the  revenue 
derived  from  it  with  other  earnings.  The  relations  among 
rates  furnish  the  real  element  of  controversy.  *Thus  adjust- 


* "As  frequently  held  by  the  Commission,  application  of  the  terms  reasonable’ 
and  ‘unreasonable’  necessarily  involves  comparison/’  (Annual  Report  for  1898,  p.  27.) 


i8 

ments  may  be  found  to  be  unreasonable,  but  rates,  as  such, 
can  not  be  shown  to  be  in  that  condition.  But  if  only  the 
difference  between  one  rate  and  another  is  in  controversy  it 
can  be  just  as  effectively  modified  by  raising  one  of  them  as 
by  lowering  the  other.  No  one  contends,  for  example,  that 
a rate  of  twenty  cents  per  one  hundred  pounds  on  grain 
shipped  from  Chicago  to  New  York  is  unreasonable,  but  it  is 
now  contended  by  New  York  interests  that  a difference  of 
three  cents  in  favor  of  Baltimore  is  excessive.  If  the  Com- 
mission, having  obtained  the  power  now  sought,  should  sus- 
tain this  contention  and  order  the  carriers  to  cease  and  desist 
from  enforcing  a differential  of  more  than  one  cent,  its  order 
could  be  obeyed  by  reducing  the  New  York  rate  from  twenty 
to  eighteen  cents  or  by  raising  the  Baltimore  rate  from  seven- 
teen to  nineteen.  If  the  companies  interested  chose  the  latter 
method,  what  agency  could  compel  them  instead  to  lower  the 
just  and  reasonable  rate  to  New  York?  Indeed,  in  such  a 
situation,  where  one  rate  is  reasonable  in  itself,  but  the  adjust- 
ment as  compared  with  some  other  rate  is  unfair,  it  is  obvious 
that  the  other  must  be  too  low  and  that  the  only  proper 
remedy,  the  only  one  which  would  be  sustained  on  appeal  to 
the  courts,  must  be  an  advance  of  the  lower  rate. 

The  Commission  has,  in  its  reports,  indicated  many  cases 
in  which  it  would  have  exercised  this  power  to  prescribe 
minimum  rates.  In  one  case  (Annual  Report  for  1897,  pp. 
24-25)  the  power  would  have  been  used  to  require  an  advance, 
or  perhaps  to  prevent  a reduction,  in  the  rates  on  lumber  from 
Winona,  Minn.,  to  Kansas  City,  Omaha,  and  contiguous 
territory.  Again,  in  1898,  the  Commission  enumerated 
(Annual  Report  for  1898,  pp.  23-24)  three  cases  of  great 
importance  which  it  thought  served  as  illustrations  of  its  con- 
tention that  the  fact  that  it  can  not  prescribe  minimum  rates 
constitutes  a “serious  defect  in  the  statute.” 

The  desire  to  interfere  in  this  way  with  relations  which 
have  resulted  from  a long  process  of  industrial  and  commer- 
cial evolution  shows  how  far  even  the  present  fairly  conserva- 
tive Commission  might  attempt  to  go  in  the  arbitrary 


i9 


disturbance  of  basic  business  conditions.  What  some  future 
Commission  might  do  may  well  be  left  to  the  imagination. 
Rebating  is  bad  enough,  but  under  conceivable  circumstances 
it  might  save  the  country  from  the  worse  evil  of  an  inflexible 
and  unwise  adjustment  of  rates.  No  industrial  community 
will  ever  fall  behind  its  competitors  and  no  great  business  will 
ever  become  bankrupt  because  of  final  refusal  to  violate  un- 
wise laws,  but  unwise  laws  may  drive  out  of  business  the  men 
who  hold  to  the  highest  standards  of  morality  and  put  in 
their  places  others  who  will  do  whatever  is  essential  to  success. 
When  England’s  Parliament  attempted  to  deprive  wage 
earners  of  the  increased  wages  which  the  economic  conditions 
brought  about  by  the  decimation  of  the  ranks  of  labor  by  the 
Black  Death  justified,  the  law  failed  and  those  who  paid 
wages  fixed  by  the  market  rather  than  by  statute  were  not 
restrained  by  the  argument  that  any  violation  of  law  is 
immoral.  No  Parliament  or  Congress  has  ever  yet  enacted 
a law  that  has  effectually  repealed  a natural  law  of  commerce 
and  trade.  Labor,  merchandise,  and  transportation  will 
forever  sell  for  what  they  will  bring. 


IT  WOULD  PROVOKE  LITIGATION. 

The  enactment  of  any  of  the  pending  proposals  would  provoke 
endless  litigation. 

The  foregoing  discussion  will  have  indicated  to  any  law- 
yer multitudinous  lines  of  legal  controversy  over  any  order 
the  Commission  might  make.  How  far  the  provision  against 
the  taking  of  property  without  due  process  of  law  may  be 
effective  to  prevent  unreasonable  reductions  of  particular 
rates  is  only  one  of  the  constitutional  questions  which  would 
require  extended  judicial  inquiry.  So  far  the  popular  theory 
has  been  based  upon  an  expression  by  Judge  Brewer  in  the 
Iowa  railroad  case  (Chicago  and  North-Western  v.  Peter  A. 
Dey  et  al.,  35  Fed.  Rep.,  866),  decided  in  the  United  States 


20 


Circuit  Court  for  the  Southern  District  of  Iowa,  on  July  27, 
1888.  Judge  Brewer  said: 

“Coming  now  to  the  question  of  the  schedule  as  presented, 
I remark  that  the  schedule  as  a whole  must  control,  and  its 
validity  or  invalidity  does  not  depend  upon  the  sufficiency 
or  insufficiency  of  the  rates  for  any  few  particular  subjects 
of  transportation.” 

It  is  to  be  remarked  that  in  this  case  an  injunction  against 
the  proposed  legislative  schedule  was  granted,  and  that  the 
objection  before  the  court  was  to  an  entire  schedule  rather 
than  to  particular  items  in  it.  It  is,  possibly,  unwarranted 
to  assume  that  if  the  legislative  attempt  were  to  take  up  the 
schedule  in  detail,  and  to  substitute  unremunerative  rates 
for  remunerative  rates,  some  way  to  stop  the  process,  by 
judicial  action,  somewhere  short  of  the  confiscation  point, 
would  not  be  discovered.  And  it  is  here  to  be  remarked  that 
the  decisions  indicate  that  the  confiscation  point  is  that  of 
“no  compensation,”  not  that  of  unreasonably  low  compensa- 
tion. Then,  too,  every  great  city  is  now  a port  of  the  United 
States.  It  would  be  scarcely  possible  to  issue  an  order  which 
could  not  be  the  subject  of  litigation  on  this  score  if  the  pro- 
vision against  preference  does  not,  in  fact,  tie  the  hands  of 
Congress  on  the  whole  subject  of  effective  rate-making.  All 
this  in  addition  to  the  interpretation  by  the  courts  of  a new 
statute  which  attempts  much  hitherto  unattempted. 


WHO  OWN  THE  RAILWAYS. 

Anti-railway  legislation  is  an  attack  upon  the  industries  and 
savings  of  the  people. 

On  June  30,  1903,  the  railways  of  the  United  States  em- 
ployed 1,3 12, 537  men,  and  during  the  preceding  twelve 
months  they  paid  out  in  wages  and  salaries  $757,321,415. 
Industries  conducted  to  supply  the  needs  of  the  railways  and 
those  of  railway  employees,  such  as  car-building,  iron  and 
coal  mining,  steel  making,  raising  and  manufacturing  food, 


21 


etc.,  for  employees,  undoubtedly  employed  other  millions  of 
Americans.  All  these  are  dependent  upon  railway  prosperity 
for  their  own  prosperity. 

Railway  ownership  is  so  diffused  that  an  attack  on  the 
owners  of  such  property  is  an  attack  on  an  important  pro- 
portion of  the  whole  population.  Forty-three  railways, 
with  a total  length  of  115,641  miles,  had  on  June  30,  1902, 
225,037  registered  stockholders  (see  article  entitled  “Who 
Own  the  Railways,”  by  Mr.  Slasson  Thompson,  in  “The 
World  of  To-Day”  for  January,  1904).  On  September  29, 
1903,  the  Illinois  Central  Railroad  had  9,123  stockholders, 
of  whom  7,174  held  fewer  than  one  hundred  shares  each, 
while  only  239  held  over  five  hundred  shares  each.  The  life 
insurance  companies  authorized  to  do  business  in  Massachu- 
setts own  railway  securities  worth  $668,262,896,  and  have 
loaned  on  others  worth  $48,381,283.  No  less  than  18,147,- 
382  policy  holders  are  interested  in  the  stability  of  these  invest- 
ments. Fire  insurance  companies  doing  business  in  the  same 
State  own  $113,702,893  more  of  railway  securities,  and  hold 
as  collateral  others  worth  $1,749,752.  Adding  the  holdings 
of  accident  and  guarantee  companies,  the  aggregate  interest 
of  the  various  policy  holders  of  these  companies  in  railway 
securities  is  found  to  be  $845,889,038.  In  the  State  of  New 
York  2,365,583  savings  bank  depositors  are  the  real  owners 
of  $177,444,223  of  railway  securities;  1,723,015  depositors  in 
Massachusetts  own  $113,397,287;  474,548  in  Connecticut  own 
$82,265,024;  209,011  in  Maine  own  $25,166,853;  242,605  in 
New  Jersey  own  $20,334,178,  and  159,956  in  New  Hampshire 
own  $23,746,521.  Thus  the  savings  bank  holdings  of  rail- 
way securities  in  these  six  States  aggregate  $442,354,086, 
and  represent  5,174,718  depositors.  Who  can  say  how  many 
families  would  be  deprived  of  their  savings,  how  many  women 
and  children  would  be  impoverished,  by  the  destruction  of 
these  values?  There  can  be  no  attack  upon  property  which 
is  so  widely  distributed  without  bringing  general  disaster 
which  will  extend  to  apparently  unrelated  industries. 


22 


“ IMPRACTICABLE,”  SAID  JUDGE  COOLEY. 

“Changes  in  government,”  said  Hon.  Thomas  M.  Cooley, 
a former  chairman  of  the  Interstate  Commerce  Commission 
and  one  of  the  greatest  of  American  jurists,  “are  to  be  feared 
unless  the  benefit  is  certain.”  There  is  no  difficulty  in  deter- 
mining what  Judge  Cooley  would  think  of  the  present  pro- 
posals. While  chairman  of  the  Commission,  he  discussed 
officially  the  suggestion  that  that  body  should  “act  as  rate- 
makers  for  all  the  roads,”  saying: 

“This  in  any  considerable  state  would  be  an  enormous 
task.  In  a country  so  large  as  ours,  and  with  so  vast  a mile- 
age of  roads,  it  would  be  superhuman.  A construction  of  the 
statute  which  would  require  its  performance  would  render 
the  due  administration  of  the  law  altogether  impracticable.” 


